Weekly Review and Outlook 19th June 2017

Mark Nugent June 2017, Trading Plan

Weekly Forex Review – Week Commencing 12th June 2017

Economic Calendar

Over the weekend:

Nothing of note.

Monday

There were press reports (Monday) that the Conservative Party and Labour Party held secret talks on a soft Brexit. (Telegraph) Also on Monday, UK lawmaker said that PM May has recognised that a broader consensus is needed for Brexit. (Newswires)

BoC’s Wilkins said the BoC is to assess if less stimulus is needed as growth continues and commented that Q1 growth figures are “pretty impressive”.

Tuesday

UK CPI rises to 2.9% vs an expectation of 2.7%. This is above the BoE’s target of 2.0% but is below wage growth. This latter fact will dilute the MPC’s desire to raise interest rates.

Wednesday

UK Average Earnings Index came in at 2.1% vs expectation of 2.4% and the prior number was revised down to 2.3% from 2.4%.

There was a slew of poor numbers from the US – CPI missed (-0.1% vs 0.2%); Core CPI did no better (0.1% vs 0.2%); Retail Sales missed by a large margin (-0.3% vs 0.1%) as did Core Retail Sales (-0.3% vs 0.2%).

Fed Interest Rate Decision
• The Fed hiked rates 25bps to 1.00%-1.25% as expected; Kashkari was the lone dissenter.
• Fed officials: 8/16 see one more hike in 2017, with 4/16 seeing two for the remainder of the year. Dot plot largely unchanged

Fed Balance Sheet Plans
• Fed expects to implement balance sheet normalization this year, initially trimming re-investments in Tsy securities by USD 6bln/month, and MBS by USD 4bln.
• Fed said the cut to reinvestment seen is expanding on a quarterly basis until it reaches USD 30bln/month for Treasuries and USD 20bln for MBS.
• Fed didn’t specify the long-run size of the balance sheet, but said it would suspend normalisation if economic conditions change.

Yellen Press Conference (Fed’s Yellen Stated):
• Economic growth appears to have rebounded after the first quarter slowdown.
• Expects inflation to move up, and stabilize around 2% and the FOMC is monitoring inflation developments closely.
• Additional gradual rate hikes will be appropriate over the next few years.
• The Fed expects to begin implementing balance sheet plan this year.

Reaction
• The release was overall seen as slightly more hawkish than anticipated given plans for reinvestment adjustments and the Fed overall upbeat about data despite recent disappointing numbers
• This stopped the rot seen in US treasury yields after yesterday’s retail sales and CPI with USD supported and some downside in the S&P 500 before recovering into the close

Antipodean currencies took centre stage amid key data releases, including New Zealand Q1 GDP which missed expectations (0.5% vs 0.7%) and pressured NZD, while AUD outperformed on stellar jobs data as Employment Change surpassed estimates, fuelled by a surge in Full-Time jobs which pushed the Unemployment Rate to a 4-year low of 5.5%. Elsewhere, the other majors were relatively quiet overnight with the greenback holding to the FOMC-inspired gains after the Fed was deemed more hawkish than anticipated.

Special Counsel Mueller is reported to be investigating US President Trump for possible obstruction of justice. (Washington Post)

Thursday

Bank of England kept everything unchanged. Of note was the voting on interest rates. 3 out of 8 participants voted for a rate hike.

UK Retail Sales missed (-1.2% vs -0.9%).

Friday

Early Friday: BoJ kept rates unchanged at -0.1% as expected and maintained QQE with Yield Curve Control as expected via 7-2 votes. BoJ maintained annual pace of JGB holdings at JPY 80tln and to target 10yr yields at around 0%, while it also kept its economic assessment unchanged in which it stated that the economy turned to moderate expansion. (Newswires)

EUR Final CPI and Final Core CPI were on target at 1.4% and 0.9% respectively.

Market Reaction

It was a neutral/risk-off week. The USD clung to support and US equities were mixed with the S&P500 flat, the Dow rising and the Nasdaq choppy after the prior week’s FAAMG fall. Oil dropped as did gold. US 10 Year yields fell. The EUR dropped back to support and the GBP moved within the range of the post-election drop. The JPY weakened towards the end of the week and the CAD consolidated while the AUD and NZD continued to grind upwards.

Trading Plan

I closed no trades last week. Month-to-date performance is 1.00% and year-to-date performance is 10.2%.

Weekly Forex Outlook – Week Commencing 19th June 2017

Economic Calendar

Over the weekend:

French President Macron’s party won a parliamentary majority with over 300 seats from a total of 577.

In the news:

US drillers extend record rig streak

Mon – Brexit negotiations begin today. Poor trade figures out of Japan with exports below and imports above expectation. Equities are up and the JPY weakens. Risk tone on Monday morning is positive.

Tues – AUD Monetary Policy Meeting Minutes

Wed – US Crude Oil Inventories; NZD Cash Rate and Rate Statement

Thurs – CAD Retail Sales

Fri – CAD CPI

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